CSA Streamlines Capital Raising Rules

On September 8, 2022, the Canadian Securities Administrators (the “CSA”) announced the adoption of a new prospectus exemption for issuers listed on a Canadian stock exchange^[1]. The goal of the new exemption is to provide issuers with a more efficient way to raise smaller capital and gain greater access to retail investors, while reducing regulatory burden and associated costs.

Subject to receiving all necessary ministerial approvals, the exemption will come into effect on November 21, 2022.

The purpose of the exemption is to provide certain issuers with the ability to raise capital based on their continuous disclosure statements. While the exemption promises to create another flexible and efficient method of accessing public capital, we note that use of the prospectus exemption may not be available to all issuers and that there are limits on the amount an issuer may unite in reliance on the exemption in any jurisdiction. time of year (discussed in more detail below).

The prospectus exemption will be available to an issuer if:

(a) it has been a reporting issuer in a Canadian jurisdiction for at least 12 months;

(b) it has equity securities listed on a recognized stock exchange in Canada;

(c) it has active business activities (for example, it has not ceased operations and it is not a capital pool company or a special purpose acquisition company) and it has not recently entered into a restructuring transaction with a person or company that had no active business operations;

d) it is not an investment fund;

(e) it has filed all continuous disclosure documents required under Canadian securities laws;

(f) he has filed a short offer document; and

(g) it does not intend to use its available funds to effect a material acquisition, a restructuring transaction or any other transaction for which security holder approval would be required.

The maximum amount that can be raised by an issuer relying on this new exemption in a one-year period is the greater of $5 million or 10% of its market capitalization, up to a maximum of 10 millions of dollars. In addition, a distribution under this exemption, combined with all other distributions made under this exemption within a one-year period, cannot result in an increase of more than 50% in the outstanding listed securities of the transmitter.

The issuer wishing to rely on this exemption must also set a minimum investment amount such that it can reasonably expect, after the distribution, to have sufficient funds to meet its business objectives and its liquidity needs. for a period of 12 months.

Prior to soliciting an offer to purchase, issuers shall (i) file with the securities regulatory authorities in each jurisdiction where the offer is made: (A) a press release announcing the offering that contains the prescribed language^[2]and (B) a duly completed short offer document (the “Short offer form”) in the form prescribed in Form 45-106A19 – Listed Issuer Finance Document^[3]; and (ii) if the issuer has a website, post the completed short offer form on its website. Issuers will also need to ensure that all information provided to purchasers in the short offer form and in some of their continuous disclosure documents discloses all material facts about the securities being offered. If the short offer form contains misrepresentations, purchasers of securities will have the right to rescind their purchase or the right to seek damages from the issuer.

Securities issued under the exemption will be freely transferable (i.e. not subject to resale restrictions under National Instrument 45-102 – Resale of Securities). Issuers are only permitted to offer listed equity securities and units consisting of listed equity securities and warrants to purchase the listed equity securities under the exemption, and may not offer subscription receipts , special warrants or convertible debentures.

There is no requirement that a broker be retained in connection with an offering made under the listed issuer exemption. The CSA have decided to maintain the flexibility of the exemption to allow issuers to make distributions of securities as they see fit, whether through a registered dealer or on their own. However, issuers undertaking distributions in reliance on the listed issuer exemption without a registered dealer will still be required to assess, using existing CSA guidance^[4]that they are engaged in the business of trading in securities and therefore are required to satisfy the registration requirement under applicable securities laws.

The exemption was developed by the CSA based on comments received from CSA Consultation Paper 51-404 – Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers^[5].